Cities throughout the county have placed themselves in financial jeopardy because of the way they handle — or don’t handle — accumulated vacation time, according to a report issued by the county’s civil grand jury.

After looking at vacation and sick leave policies for the county’s seven incorporated cities, grand jurors concluded that several of them “have, or will have a considerable problem in paying off their accumulated vacation time.”

Grand jurors explored vacation and sick leave policies in Arroyo Grande, Atascadero, Grover Beach, Morro Bay, Paso Robles, Pismo Beach and San Luis Obispo. In the report issued Thursday, they found lax application of city standards and, in some cases, disregard of them.

They singled out Paso Robles for particular criticism. The city has an unfunded liability of vacation accrual of $1,646,575.

Paso Robles City Manager Jim App disputed the grand jury’s findings, arguing that panelists “misunderstood” accumulated vacation, which, he said, is “not an unfunded liability.” Rather, App said, the city can fund accumulated vacations by leaving a post vacant for a short time, thereby generating a savings in wages not being paid.

The detailed exploration of each city’s policies toward vacation and sick time accrual was triggered by a citizen complaint. The grand jury declined to divulge its origin.

The information seems certain to add another talking point to the discussion of benefits given to public employees, a topic that has received considerable attention in recent years and led to ongoing efforts to reform public employee pension plans.

Inconsistencies

The information gleaned by the grand jury differed in its particulars among the seven cities and revealed some apparent inconsistencies.

Among the many observations:

In Arroyo Grande, managers can accrue 750 hours of vacation time — more than 18 weeks — while nonmanagers can accumulate up to 250 hours.

Arroyo Grande had the fewest hours accrued per employee, with 87. It also had the smallest total dollar amount owed: $253,120.

Different cities have different approaches on whether and how to pay off unused sick leave, with some having developed formulas for converting some sick leave into vacation time.

Atascadero has a policy for limiting vacation accrual but has not enforced it for 20 years, “thereby causing a problem for the city.”

Atascadero has ignored requests from its city attorney to make changes that would address the problem of accumulated vacation time.

Morro Bay, which has 12 employees with more than 300 hours of accumulated vacation time, is sometimes in violation of its own policies.

On Paso Robles

The grand jury came down hardest on Paso Robles.

The city, it said, “has an enormous problem of accumulated vacation time and unrelated unfunded liability.” It said the accumulation is largest in management-confidential unit employees and the Police Department, the two highest-paid groups in the city.

Paso Robles also does not appear to have updated its personnel rules and regulations since 1989, grand jurors wrote.

App said the grand jury “misunderstands accumulated vacation,” which he said is not an unfunded liability. Rather, App said accumulated vacation is funded two ways:

When an employee leaves, App wrote in an email to The Tribune, he or she receives payment for the accumulated vacation owed. That average is currently $12,000. The position generally remains vacant for months, he wrote. A three-month vacancy would average a savings of $18,000, “$6,000 more in savings than was expected to cover the accumulated leave.”

In addition, App wrote, the city’s general fund exceeds $10 million — “more than enough to cover the cost of every/all employees terminating simultaneously.”

“The only scenario when accumulated vacation might possibly become an unfunded liability is in the case of both a bankruptcy and business closure,” App said.

App added that the city’s annual audited financial statements report the value of accumulated vacation, as well as the city’s practice of funding these future obligations with future resources.

“Unlimited accumulation of vacation has been the city’s practice for over 20 years,” he wrote. “The fact that an older policy states otherwise merely reflects that the written policy has not caught up with established practice.”

Grand jurors recommended that all cities review their accumulated vacation time and get a handle on future accumulation and payments.